States one step closer to collecting sales tax on Internet purchases

TROY -- It may soon be easier for states to collect sales taxes on Internet purchases, a change that local small businesses are lauding.

The Marketplace Fairness Act of 2013 passed the Senate Monday evening by a vote of 69 to 27, and it's future is now up to the House. The bill would allow states that simplify their sales tax code to collect sales taxes on online and catalog purchases directly from the seller, even if they are based in another state.

Susan Novotny, owner of Market Block Books on River Street, praised the bill.

"The independent book selling community has long advocated for sales tax fairness," said Novotny. "We've been doing it one state at a time over the past five or seven years and, fortunately, New York was one of the earlier states to initiate to sales tax for online sales. We're very happy to see [the issue] reach the level it has in Washington."

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As it stands, there are 45 states including New York that require sales tax to be collected on all purchases made in the state, both online and catalog; however, those states have been unable, as states, to enforce the collection of sales taxes on purchases made by their residents from retailers based in other states. Historically, forcing such retailers to collect sales taxes and remit payment on those purchases was seen as an undue burden on the business, but with technological advances, the weight of that burden has drastically lessened.

Despite the lack of an included tax for online purchases, New York has required residents to report each purchase on their state tax return and pay at that time. Nonetheless, only one percent or so of purchases are ever reported. The new legislation could redirect millions of uncollected sales taxes back into state coffers.

For brick-and-mortar retailers, who contend that online retailers have had an unfair advantage, the legislation is widely seen as rectifying a disparity.

"It takes away the initial unfairness that some merchants are required by law to collect sales tax and others are not," said Ted Potrikus, executive vice-president of the Retail Council of New York State, a trade association representing over 5,000 businesses that have a physical presence in the state.

In its current form, the bill attempts to keep the sales tax burden from falling on small businesses by exempting retailers that gross less than $1 million a year in sales to customers in states where the company does not have a physical presence.

On Monday, large online retailer and auction site eBay released a statement that the company wants Congress to "focus on bringing greater balance to the legislation by protecting small businesses." They are pushing for exemptions for companies with annual outside sales up to $10 million or fewer than 50 employees. The current exemption of $1 million already covers the vast majority of small businesses in the state, said Potrikus.

The bill passed the Senate with wide, bipartisan support -- two independents, 21 Republicans, or 46 Democrats including New York Sens. Charles Schumer and Kirsten Gillibrand -- and is now in the House.

"We're hopeful that the size of the victory [Monday] night, a resounding margin, sends a message to the House that this is a good bill and a simple bill," said Potrikus.